Charging American companies that pollute through a cap and trade system is the best way to cut the country's emissions without impacting the poor, an independent think-tank has claimed.

In a new report on potential solutions to climate change, the Center on Budget and Policy Priorities dismissed claims that such schemes would inevitably lead to significantly higher energy and fuel bills and have a disproportionate impact on poorer families.

The CBPP - a Washington-based not-for-profit policy organisation representing low income earners - said a "cap and trade" system and/or a carbon tax would be the most effective way of improving the country's environmental standing.

"Efficient, effective policies to reduce greenhouse-gas emissions work in part by putting a price on those emissions, thereby ending the free use of the atmosphere to dispose of pollution," the CBPP said. "When energy prices rise, households with limited incomes are affected the most. They spend a larger share of their budgets on energy than better-off households do. Fortunately, well-designed climate-change policies can provide sufficient revenue to cushion the impact."

Under a cap and trade system, the regulator would set limits on emissions for polluters, then divide these limits into permits. These permits could then be bought and sold between companies. The CBPP argued this provided a key incentive for companies to reduce emissions while giving them more flexibility than legally binding caps for individual firms.

However, the report cautioned that a cap and trade system would only work if permits were auctioned off for "public purposes" rather than to boost company profits.

The report apparently contradicts the US administration's argument that mandatory cap and trade schemes would unfairly impact those families who were worst off.

Meanwhile, speaking after a budget speech in Arkansas on Monday, President George Bush reiterated his resistance to improve America's environmental stance to the detriment of the economy and slammed the 1997 Kyoto Protocol on climate change as "bad policy". "The fundamental question is whether or not we will be able to grow our economy and be good stewards of the environment at the same time," he said.

His comments came as the Canadian government this week confirmed plans to ignore its legally abiding limits set under Kyoto, despite claiming it wanted to cut emissions by 70 per cent in 23 years. "It is now widely understood that, because of inaction on greenhouse gases over the last decade, Canada's emissions cannot be brought to the level required under the Kyoto Protocol within the compliance period," said governor general Michaelle Jean.